"Most people prefer to believe their
leaders are just and fair even in the face of
evidence to the contrary, because most people
do not want to admit they do not have the courage
to do anything about it. Most propaganda is not
designed to fool the critical thinker, but only
to give moral cowards an excuse not to think at
all" -- Michael Rivero (political writer)

"It should be no surprise that when rich
men take control of the government, they pass
laws that are favorable to themselves. The surprise
is that those who are not rich vote for such people,
even though they should know from bitter experience
that the rich will continue to rip off the rest
of us. Perhaps the reason is that rich men are
very clever at covering up what they do."
-- Andrew Greeley (2001)

"Low rates, over time, systematically
contribute to the buildup of financial imbalances
by leading banks and investors to search for yield.
The search for yield involves investing into less
liquid assets and using short-term sources of
funds to invest in long-term assets, which are
necessarily riskier. Together, these forces lead
banks and investors to take on additional risk,
increase leverage, and, in time, bring in growing
imbalances, perhaps a bubble and a financial collapse."
-- Thomas Hoenig (Kansas City Fed President)

MISCELLANEOUS
MORSELS

◄$$$ A NEW PHENOMENON HAS HIT THE BANKING
SECTOR. THE EFFECT OF COMMERCIAL MORTGAGES AND
REGIONAL BANKS IS DIFFERENT WITH RESPECT TO THE
F.D.I.C. INSURANCE AND ASSET TREATMENT. MORE LIQUIDATIONS
OCCUR, LED BY THE F.D.I.C. IN ITS TREATMENT OF
SEIZED ASSETS. THE ENTIRE REAL ESTATE MARKET IS
CONSEQUENTLY VULNERABLE FROM DIVERTED ATTENTION
AND LACK OF VESTED INTEREST. A PRICE SHOCK MIGHT
HIT SOON. $$$

A powerful new phenomenon is at work. The description
will be given in broad strokes. The commercial
mortgages are defaulting, and have caused numerous
regional banks to fail. As they fail, the FDIC
enters, finds buyers for some assets, but liquidates
portions of the assets unlike before. The liquidation
is new, something not done in 2008 and early 2009.
In the last few months, the FDIC has enlisted
the cooperation of liquidation firms. They bid
on seized FDIC assets, along with other parties.
But the liquidators sell off the assets at heavy
discount almost immediately, leading to the extreme
anger of the other parties. Losses are in the
25% to 50% range, a reflection of reality not
suffered in the residential housing market.
The FDIC in doing so has discouraged primary participants
in wholesale asset distributions, so the liquidators
will begin to dominate. The FDIC has caused a
strong downward effect on property prices within
weeks, primarily with the commercial properties.
The trend change is for more asset liquidations
since almost no Wall Street role is involved.
In the past, big swaths of mortgage assets were
seized by the FDIC, but sold or given to Wall
Street firms. They promptly hid the off-balance
sheet. The commercial properties are different,
since little or no Wall Street participation.
So the FDIC, in obedience to its Wall Street masters,
proceeds to liquidate, with no concealment of
mortgages off-balance sheet. The commercial arena
might therefore trigger an avalanche on the real
estate market generally. Banks are suffering losses,
whether declared or not. Property prices are being
forced down, with certain effect on the asset
backed securities, the mortgage bond. A shock
wave might come in the next few months, with a
15% or 20% price decline, suddenly hit. The origin
would be the commercials, which Wall Street has
lost control of from lack of vested interest.
The shock might be global.

Some call him the rogue USFed President. Thomas
Hoenig is the Kansas City Fed President. He comprehends
much of what is upside down, in a ruined state
within the US
banking system. His perspective goes counter to
the prominent dominant banking themes, called
these years Keynesian (when John Maynard Keynes
would objectively vehemently). Propping up and
mopping up the last credit cycle failure has led
to massive imbalances, the opposite of what a
well functioning market would do. That is, to
reduce the credit rapidly, increase interest rates,
liquidate bad loans, permit bank failures, reassign
the healthy assets, and clear the deck for the
new chapter. Instead, debts have grown in wild
fashion on the USGovt side, and interest rates
are back near 0%, which caused the current crisis
to take root in the first place. Worse, outsized
federal deficits almost guarantee the USEconomy
will not and cannot recover. The nation is
on a permanent speculative craze, since near 0%
rates cannot be permitted to rise. That would
destroy both the USGovt debt burden and wreck
credit derivatives.

Hoenig is one of the few policymakers who grasp
the complexity of the situation, and the new seedbed
of future problems being encouraged with near
0% rates and amplified monetary growth. He said,
"Low rates, over time, systematically
contribute to the buildup of financial imbalances
by leading banks and investors to search for yield.
The search for yield involves investing into less
liquid assets and using short-term sources of
funds to invest in long-term assets, which are
necessarily riskier. Together, these forces
lead banks and investors to take on additional
risk, increase leverage, and, in time, bring in
growing imbalances, perhaps a bubble and a financial
collapse." The inducement once again
is to pursue higher bond yields that carry much
more risk, like mortgages did three to five years
ago. Those mortgage bonds are today's toxic bonds.
Hoenig chooses not to be complicit in the ZIRP
(zero interest rate policy) experiment that is
guaranteed to cause tremendous problems in the
near future when the speculation unwinds. Hoenig
has the courage to speak up about long-term consequences.
His stated viewpoint is a refreshing contrast
to the short-term thinking and ignorance of the
long-term consequence of ZIRP, not to mention
the constant devoted banker welfare for Wall Street
firms. The crowd of USFed academics point to supposed
benefits of zero interest rates and deep deficit
spending, while remaining either blissfully unaware
of the assured destructive consequences of these
policies or deeply engaged in exploiting them.
More accurately, that crowd is both intellectually
dishonest and corrupted by the Wall Street syndicate
whose helm that are part of the obedient subservient
helm.

Take for example the heretical irresponsible
myopic position stated by Alan Greenspan in testimony
before the USCongress last week. His appearance
was intended to put his feet to the fire. His
thought pattern is so corrupted that he barely
noticed the heat that has burned his legacy to
a crisp. Even after the 2008 crisis that extends
powerfully to the present, Greenspan still refuses
to acknowledge the distortions that his USFed
policies inflicted on the USEconomy, resulting
in the insolvency of the entire upper echelon
of the US banking system.
One very important contradiction, totally ignored
by the mainstream financial arena is that short-term
rates near 0% imply that savings are monumentally
ample and available, a huge supply of credit.
It is not, except for Wall Street and connected
insiders. High rates correspond to limited funds
for credit. The painful hardship imposed on the
society as a result is the near zero return on
bank CDs offered to savers, like for my father.
They are induced to seek out the next reckless
mortgage bond yield. Even when they find money
market funds, they tend not even to return all
their money back, as in redemptions below 100
par value.

◄$$$ THE IRISH BANK SYSTEM IS GROTESQUELY
INSOLVENT. THE CLEANUP PROCESS IS COSTLY. MANY
BELIEVE THE EVENTS ARE ONE-TIME ONLY, BUT THEY
WILL BE REPEATED IN A STEADY PACE. THE IRISH ECONOMY
WILL NOT REBOUND QUICKLY OR MUCH AT ALL. THE POISON
I.M.F. PILL ASSURES MORE DEEP DEFICITS IN AN ASSURED
DOWNWARD SPIRAL. $$$

Irish banks will require a staggering $43
billion to reinstate them after appallingly reckless
lending. A mountain of new capital is needed
to clean up after years of abundant yet unchecked
lending decisions that left the country's financial
system on the brink of collapse. It has collapsed
actually, but recognition is not given. This $43
billion amount was announced by the National Asset
Mgmt Agency (NAMA). The central bank set new capital
buffers for Allied Irish Banks and Bank of Ireland,
giving them a 30-day deadline to announce how
they will raise the funds. Denial is apparent
at some level, but disappointment is stark. Finance
Minister Brian Lenihan said, "Our worst
fears have been surpassed. Irish banking made
appalling lending decisions that will cost the
taxpayer dearly for years to come." Financial
regulator Matthew Elderfield said, "The
banks are undergoing major surgery via NAMA. They
need a transfusion now to speed their recovery
and that of the economy." Another common
view is laced in denial, held by Ciaran O'Hagan,
a fixed-income strategist at Societe Generale.
She said, "The bank losses, awful as they
are, represent a one-off hit. It is water under
the bridge. What is of more concern for investors
in government bonds is the budget deficit. Slashing
the chronic over-spending and raising taxation
by the Irish state is vital." The Irish
Govt deficits will continue, since no solution
on restructure was achieved. The Intl Monetary
Fund poison pill of reduced spending, huge job
cuts, higher taxes, and radical surgery will provide
no remedy, as history has shown. The IMF austerity
measures have not a single example of viable remedy
in 30 years. Greece
might be closely watching Ireland,
as an example of conditions growing worse after
IMF supposed aid.

The critical equity to be raised is enormous.
Allied Irish needs to raise ¬7.4 billion to meet
the capital targets. Bank of Ireland will need
¬2.66 billion. Anglo Irish Bank, nationalized
a year ago, may need as much ¬18.3 billion. Scores
of smaller banks have proportional needs. The
NAMA agency is designed to function much like
the Resolution Trust Corp in the United States back in 1990. The banks in Ireland
must be cleansed of toxic loans after the housing
market entered a powerful recession. NAMA is
on track to purchase loans with a book value of
¬80 billion (=US$107B), about half the size of
the entire Irish economy. That would equate
to $7 trillion in the United States, as
in $7000 billion. Allied Irish plans to sell its
stakes in foreign banks located in the US
and Poland, enough to
meet a substantial part of its capital needs.
It also plans a stock sale. The banks must have
an 8% core Tier 1 capital ratio by the end of
the year, according to the regulator. The core
equity for Allied Irish stood at 5%, and Bank
of Ireland at 5.3% by end 2009. Those ratios exclude
a government investment of ¬3.5 billion in each
bank, made at the beginning of 2009. Ireland will likely
not be able to afford to direct more money into
the banks. Its budget deficit widened to 11.7%
of GDP last year, almost four times the European
Union limit. See the Bloomberg article (CLICK
HERE).

Take one Irish bank as an example. Anglo Irish
Bank has reported a record ¬12.7 billion loss.
One of the largest banks is also the most ruined
bank, nationalized already. It has announced the
largest corporate loss in the history of the Republic
of Ireland. The disclosure
came one day after the Irish Govt said it would
inject a further ¬8.3 billion into the bank. Anglo
Irish declared its bad debt writedowns totalled
¬15.1 billion, of which ¬10.1 billion would be
transferred to the state-run 'Bad Bank' known
as the National Asset Management Agency. It is
the official cesspool to liquidate toxic and impaired
assets. Finance Minister Lenihan justified putting
good money after bad into the bank in true politician
form, saying "[It was] the least worst
option. [The solution for Anglo Irish was] by
far the biggest challenge in resolving the [Irish]
banking crisis. The unavoidable reality is that
the bank has incurred losses from its large scale
property lending and needs substantial further
capital." The European Union Commission
has entered the picture, warning that the bank
must draw up a new business plan and restructure
profoundly, in their words. The Irish Govt disagrees
with the NAMA amount of urgently needed capital.
It estimates that collectively the nation's banks
have a capital shortfall of up to ¬32 billion,
a smaller sum. See the British Broadcast Corp
article (CLICK HERE).

An email came from a contact in Europe.
The message read, "Just heard from a good
friend in Ireland
that the austerity measures adopted by the Dublin
government are causing untold hardship. He thinks
there will be an uprising among the people that
could get very nasty indeed." An economic
recovery is such a distant hope. The Irish cannot
blame the Americans for their disastrous housing
and mortgage bubbles. They had industry. They
had balance. But they followed the American lead
over the cliff. Way too many small Dublin
houses fetched $300k in insane fashion. Banks
copied the reckless American bank lending, and
went over the cliff with just as much damage done,
maybe more. The Americans can at least still attract
foreign capital... well, maybe not anymore.

CAPITAL CONTROLS OVERTURE

◄$$$ THE ADVENT OF CAPITAL CONTROLS FOR
FUNDS SHIPPED OUT OF THE UNITED STATES IS COMING.
THE PLAN CALLS FOR A 30% TAX IMPOSED ON ALL FUNDS
EXITING, BEGINNING IN YEAR 2013. FOREIGN FINANCIAL
FIRMS ARE TO BE REQUIRED TO SERVE AS UNPAID USGOVT
TAX COLLECTORS. THEIR ROLE IS FAR FROM CERTAIN,
AS COOPERATION MIGHT BE LACKING DUE TO HOSTILITY
FROM SUCH EDICTS. THE MOVEMENT OF MONEY OUT OF
THE UNITED STATES SOON WILL CARRY A TARIFF EXIT
TAX. $$$

Capital controls are scheduled to come to the
United States. Implications are two-fold. First,
money will be trapped within the deteriorating
landscape, as hostage to support the crippled
USDollar. Second, in time, my expectation is for
the only legitimate accepted investments to be
USTreasurys, Fannie Mae mortgage bonds, and other
related heavily damaged and highly risky bond
securities that support official USGovt bubbles
and their trillion$ fraud structures.

Hidden within a Congressional Bill (HR 2487),
complete with a gross misnomer, comes capital
controls. The bill is called the Hiring Incentives
to Restore Employment Act (HIRE Act), to provide
$17.5 billion in employment stimulus for job creation.
Really? The bill caught the attention of few legislators,
too busy raising campaign funds and defending
against the objection to the Health Care Bill.
Check the important provisions on page 27, known
as Offset Provisions in Subtitle A, the Foreign
Account Tax Compliance. The Provision requires
that foreign banks not only withhold 30% of all
outgoing capital flows, but also disclose the
full details of non-exempt financial account holders
to the USGovt and the tax agents at the IRS.
Furthermore, if this provision draws fire from
being declared illegal by a given foreign nation's
domestic laws, the foreign financial institution
is obligated to close the financial account. Capital
Controls are on the legal books, to be enforced
in the next couple years by law. But it is not
that simple. Foreign nations have their own laws,
their own inspector generals. Their financial
institutions do not feel compelled to hire a person
as a full-time employee for the expressed purpose
of following the reams of new laws passed by the
broken corrupt and insolvent USGovt, whose policies
and edicts resemble a Third World nation. Some
nations might choose to close foreign accounts.
Other might choose simply to ignore the latest
dictum. Some might simply appear to comply by
the new rules. Be sure that none of the mainstream
US
press networks covered the story, but the intrepid
internet was alive with it two weeks ago. It was
all abuzz.

The Internal Revenue Code is set to be amended.
Items in the new Chapter 4 pertain to certain
foreign accounts. Withholding tax equal to
a 30% on payments to foreign financial institutions
are to be made, in the case of any US
account maintained by such institution, and to
report on an annual basis the required information.
Any account holder that refuses to comply or is
located with a financial institution that do not
meet the requirements is deemed recalcitrant,
a loose word that means in violation or dragging
the feet. Without a waiver within a certain period
of time, the account must be closed. Capital flows
will be overseen and controlled by the USGovt
and the IRS. The foreign financial firm is
to be required to provide the identity of each
US account holder, the account number, the account
balance, and some indications on gross receipts,
gross withdrawals, and payments from the account.

Exceptions are granted if under $50 thousand
is held in the foreign accounts. A broad definition
is to be applied for a financial account,
including depository, custodial, or equity and
interest paid. Other exceptions are given for
"any other class of persons identified
by the Secretary for purposes of this subsection
as posing a low risk of tax evasion."
That means any of the USGovt agency friends, colleagues,
and family members. Exemptions are certain to
come for an armada of Wall Street executives,
key USGovt agency executives, and the narcotics
syndicate accounts. Recall that almost ten Obama
Cabinet ministers had income tax violations in
recent years. People like these would surely be
exempt. Unclear in the language of the legislation
is the treatment of gold in delivery, since it
is not considered money. Similarly, some doubt
exists over the treatment of commodities in delivery.
Preliminary legal discussions with lawyers indicates
that a such deliveries might be considered as
30% taxable transaction. See the Zero Hedge for
all the legal details of the HIRE Bill and its
capital controls (CLICK HERE).

Thus the noose on capital mobility tightens,
as very soon the only option US citizens have when it comes
to investing their money, will be in government
mandated retirement annuities, which will likely
be the next step in the capital control escalation.
Such dictums will culminate with every single
free US$ required to be reinvested into the United
States, likely in the form of purchasing USTreasurys,
TIPS, Fannie Mae bonds, and other worthless pieces
of paper. The USGovt will attempt to abuse their
tax exempt declarations and steer pension funds
into the USGovt sponsored bubbles, after imprisoning
funds within domestic borders. Watch for 401k
and IRA rule changes. See the New York Times article
(CLICK HERE).

The Hiring Incentives to Restore Employment Act
contains numerous provisions that impose new taxes,
penalties, and requirements regarding the reporting
of foreign bank accounts. The most important issue
is the imposed 30% withholding tax on most US-source
income paid to foreign financial institutions
which do not comply with IRS reporting requirements.
One can assume that simple transfers to meet a
commercial contract obligation will be either
immune or waived, and after demonstrated proof,
the withheld funds would be passed through to
the destination in whole. Essentially, Treasury
Secy Geithner expects foreign financial institutions
to become unpaid tax collectors and informants
and for the USGovt. The default will serve
as a 30% tax for those who do not wish to comply,
when those funds constitute income from US sources.
The 30% withholding tax has set off alarm bells
across the cyberspace. The bill aggressively expands
the definition of a 'US beneficiary of
a foreign trust,' extends the penalty period for
erroneous reporting, and expands the offshore
financial account reporting requirements. In the
strictest sense, these measures are NOT capital
controls, since they do not block fund transfers,
nor do they make it illegal for US citizens to
open a foreign bank account. To be sure, these
measures are a probably prelude to tougher total
capital controls. For instance, capital controls
are in effect between the US
and Cuba. The consequence
even in this instance is to inhibit the flow of
funds, and thereby tend to trap wealth within
the US borders. An intriguing element to the HIRE
Bill and its hidden taxation is its quiet passage
into law. Check the following level headed, plain
English interpretation of the bill from Mark Nestmann's
website (CLICK HERE).
Thanks to the Sovereign Man in Panama
for contributions.

GOLDMAN SACHS
CORRUPTION ACCUSED

◄$$$ GOLDMAN SACHS WAS HIT WITH A CIVIL
SUIT AND FRAUD CHARGES OVER C.D.O. BOND DERIVATIVES
LOADED WITH TOXIC SUBPRIME MORTGAGES. THEY ALLEGEDLY
FAILED TO DISCLOSE KEY PARTS TO THE ISSUANCE.
THE DIE IS CAST FINALLY. RECOGNITION IS COMING
THAT GOLDMAN SACHS IS BUT A CRIME SYNDICATE HEADQUARTERS
THAT ACTS LIKE A PARASITE ON THE FINANCIAL MARKETS
AND THE USGOVT ITSELF. LEGAL ACTION MIGHT COME
NEXT FROM GERMANY.
$$$

The Securities & Exchange Commission on April
16th charged Wall Street's most gilded firm Goldman
Sachs, the nexus of the Wall Street financial
crime syndicate, with defrauding investors in
a sale of securities tied to subprime mortgages.
The SEC charged New York-based Goldman Sachs and
a vice president Fabrice Tourre for their failure
to disclose conflict of interest in a 2007 sale
of a Collateralized Debt Obligation. It is a civil
case, not a criminal case. Investors in the CDO
ultimately lost $1 billion, claims the SEC. A
CDO is a financial instrument backed by a pool
of assets, typically home loans or mortgage bonds
joined by credit derivatives, but with leverage
of 5:1 or 7:1 typically. The civil fraud complaint
alleges that Goldman enabled hedge fund Paulson
& Co, run by John Paulson, to help select
securities in the CDO issuance. Paulson made billions
of dollars betting on the subprime collapse. Goldman
did not inform investors that Paulson was shorting
the CDO, betting on a decline in value. When the
CDO plunged within months of its issuance, Paulson
escaped with $1 billion in ill-gotten gains. The
SEC alleged that the Paulson fund paid Goldman
Sachs approximately $15 million for structuring
and marketing the deal, known as Abacus 2007-AC1.
That seems like bribery. Khuzami said Paulson
was not charged because it had no duty to fully
disclose conflicts to other investors. Goldman
did have such a duty, since it sold the securities
to investors. The loss to investors was extremely
rapid. While many CDO deals were losers, the Abacus
CDO at the center of this case blew up with a
distinction on speed. Within six months of the
closed deal, 83% of the residential mortgage backed
securities in the portfolio had been downgraded,
the SEC said. Within nine months, 99% had been
downgraded. Khuzami and the SEC are pursuing the
return of the fraudulent gains as well as future
penalties.

Robert Khuzami is director of the Division of
Enforcement for the SEC, a new squad. Khuzami
said the case was the first brought by a new SEC
division investigating the abuses of structured
financial products such as CDOs in the credit
crisis. He admitted the investigation continues
but declined to comment further. Broader charges
to other firms could follow. He said, "The
product was new and complex but the deception
and conflicts are old and simple. We continue
to examine structured products that played a role
in the financial crisis. We are moving across
the entire spectrum of products, entities, and
investors that might have been involved."
Shares of Deutsche Bank (DB), another big player
in the structured securities markets of the bubble
era, fell 8% on the same day, perhaps in sympathy
or due to suspected future similar charges. See
the Fortune magazine article posted on CNN Money
(CLICK HERE).

The Wall Street Journal provided a summary of
the case, worthy of any intrigue filled mystery
crime novel. They wrote, "The 22-page
Securities & Exchange Commission complaint
against Goldman Sachs provides an outline of such
a narrative. It has big players:
Goldman Sachs and Paulson & Co, not the former
Treasury secretary, the hedge fund that famously
made a winning bet on the collapse of the housing
market. It has an alleged villain
with a spy novel name: Fabrice Tourre, the 31-year-old
vice president on Goldman's Structured Product
Correlation Trading Desk who was selling a financial
product called Abacus. It has victims:
The hapless state owned German bank IKB, which
the SEC says bought Goldman manufactured securities
and lost $150 million. It has an allegedly hoodwinked
middleman: ACA Management, from which
the SEC says Goldman hid the truth. There is even
a cameo role for American International
Group. And it has motive: Paulson,
the SEC alleges, essentially paid Goldman $15
million to create junk so the hedge fund would
have something to bet against, and then Goldman
allegedly tricked ACA to say it was not junk so
Goldman could sell the stuff to unwary investors.
Paulson made $1 billion, and the investors lost
$1 billion. Paulson is not named as a defendant."

Colorful Jim Sinclair made some juicy comments
in his weblog. He wrote, "If you think
that Goldman's problems are not shared by the
entire derivative market, you are bonkers. If
you see the Goldman situation as negative to gold,
you are a total fool. If you see the Goldman situation
as being bullish to the dollar, you are hopeless."
Chris Whalen is a bank analyst at Institutional
Risk Analytics. He said, "This litigation
exposes the cynical, savage culture of Wall Street
that allows a dealer to commit fraud on one customer
to benefit another."

Goldman Sachs is the most adept investment bank
and brokerage firm at corrupt insider trading.
They use information from their perch at the USDept
Treasury, from management of USTreasury Bonds
and the USDollar, from special funds like the
GS Commodity Fund and the gold mining stock fund
GDX (handy for shorting in big strokes), and even
NYSE trade flow data (highly illegal). Rumors
are brisk and wild that Goldman Sachs shorted
their own stock and profited from the 12.8% decline
in share price last Friday. Reuters reports have
come that the SEC notified GSax of the charges
months ago, and tipped them off in the last ten
days. Tyler Durden at Zero Hedge makes a damning
charge. He wrote, "Time for the SEC to
take a look at what bets Goldman's prop desk,
and material affiliates as well as hedge funds
that are close to Goldman's flow traders, were
taking on Goldman's stock over the past few days.
If indeed Goldman shorted itself, bought SPY puts,
bought octuple leveraged negative financial ETFs,
or something else of the sort, on material non-public
information, it would be time to shut the
firm down." The SPY is for the
S&P500 index, not a spy novel stock. See the
Zero Hedge article (CLICK HERE).

Losing bond investors included German bank IKB
(Deutsche Industriebank AG). It was eventually
rescued by the state owned KfW development bank,
along with other financial firms during the financial
crisis. The Welt am Sonntag newspaper quoted Chancellor
Angela Merkel's spokesman, UIrich Wilhelm, as
saying that German regulator BaFin will seek additional
information from the US Securities & Exchange
Commission. He said, "After a careful
evaluation of the documents, we will examine legal
steps." An IKB representative said the
bank is aware of the charges filed by the SEC,
but declined to comment further. The SEC claims
IKB lost almost all its $150 million investment.
Since the onset of the crisis, IKB was sold in
2008 to Lone Star Funds in Texas.
See the Huffington Post article (CLICK HERE).

Once this die is cast, a long list of grievances
and lawsuits might come against Goldman Sachs,
that also include European sovereign bonds.
It is far easier to add a firm's name to a list
than to be the first one. Goldman Sachs might
find itself in court for the next two to three
years on dozens of cases, along with other Wall
Street banks. Maybe the USDept Treasury will pick
up the legal expense tab. A fine point must be
cited, how prosecution sheds light and forces
the issue on mortgage bond fraud often cited by
the Hat Trick Letter. This case is a simple premeditated
misrepresentation, bribery, fraud case. Another
big question in my view is the role change at
the SEC itself. Long a pack of errand boys and
country club buddies from Wall Street, the SEC
staff might finally show some stones or be given
carte blanche to prosecute from a hidden higher
power. The group that Khuzami comes from is a
special task force, which might expand and become
a permanent fixture to the SEC itself. My suspicion
is that the Obama Admin has entered a war with
segments of Wall Street, or else they wish to
produce a single prosecution with clean non-criminal
outcome, so as to claim to the US public that legal action against Wall Street
firms has finally been completed. This could be
another Stress Test. Recall that Bush II Admin
had a Fascist core, but the Obama Admin has a
Communist core, and they clash like Hitler and
Stalin did. The majority of Americans are oblivious
to such dynamics and historical details. However,
my guess is that they are opening yet another
grand Pandora's Box, out of possible fear of US population outrage, or
at least November mid-term elections. Once
prosecution begins, it could turn to criminal
cases, and it could invite a long list of legal
complaints and lawsuits to recover lost investments,
from many nations.

◄$$$ THE CORRUPTED MARKET MANIPULATION
BY WALL
STREET BANKS EXTENDS TO STOCK PRICE. SELF-SERVING
ACTIVITY BEHIND THE CURTAINS ENRICHES THEIR EXECUTIVES
ON STOCK OPTIONS. THEY STEER DOWN THE STOCK PRICE
UNTIL OPTIONS ARE SET WITH STRIKE PRICES, THEN
STAGE A MIRACULOUS RECOVERY. SUSPICION STATED
IS NOWHERE. $$$

In lieu of cash bonuses that would anger the
USCongress and US public at large, Wall Street
executives accepted ample stock options back in
early February. They turned them into highly profitable
awards. One must suspect that the stock gain recovery
benefited from the strong bidding arm of the Plunge
Protection Team funds (aka Working Group for Financial
Markets) at work by USGovt intervention freaks.
The financial stocks were on a downward trajectory
at the time of the bonus controversy, enough to
enlist the hue & cry from many commentators
and analysts. Their charts including GS and JPM
appeared in January to be breaking down. But
Richard Guthrie from the Scarborough Bullion Desk
in England did not believe the breakdown, even
made comments over this period to his clients
that it was unlikely the bankers would award themselves
bonuses in stock if concerned over a possible
collapse in their share prices. The executives
at Goldman Sachs and JPMorgan have indeed made
an absolute killing on their stock bonuses! Not
coincidentally, the price of these stocks plunged
in January just prior to the issuance of directors
stock, when stock options were awarded and strike
prices were set, at a nice convenient discount.
Below are the charts of Goldman Sachs and JPMorgan,
with annotations provided by Guthrie. Judge for
yourself the timing, motive, and effect.

Both GS and JPM stock share prices fell before
the executive options were fixed in strike price,
and rebounded afterwards. Usage of PPT funds and
leverage are the likely devices to lift the stocks
by 25% to 30%. Danger lies ahead, when the USDollar
monetary crisis hits the doorstep with full brunt
force. The Wall Street executives will have cashed
out by then.

As a rejoinder, consider two stories. Early in
the 1990 decade, JPMorgan entered a merger acquisition
to take over Chase Manhattan Bank. It was one
of a long series of takeovers, that included Chemical
Bank, Manufacturers Hanover, Bank One, and others.
The takeover of Chase Manhattan was unique. Of
course, Chase owned a powerfully profitable consumer
business. But hidden from view was its long position
in the Gold market. Being the official unspoken
agent for the US Federal Reserve, the giant JPMorgan
found it necessary to remove Chase from its adversary
gold role, so that the USFed could support the
USDollar. The effect had two sides. The Chase
long gold position would offset some of the JPMorgan
short gold position. Also, Chase would no longer
oppose JPMorgan and put itself in the path of
whatever tactical maneuevers were deemed urgent
in the USDollar defense and Gold suppression.

Protests on the Syracuse Univ campus in upstate
New
York have arisen over the selection to invite
JPMorgan CEO Jamie Dimon as keynote speaker for
graduation commencement exercises set for May
16th. So far protests are vocal and diverse. The
students claim that Dimon is not an inspiration
toward future, not an example of a respected leader
or icon, and is insensitive to the difficult financial
climate. He comes from a controversial arena with
collective bad behavior. The group of 60 protestors
carried signs reading "Power to the People"
and "No Corporate Commencement" to express
their discontent with the choice of commencement
speaker. Syracuse
student senior Ashley Owens told the Wall Street
Journal that objection to Dimon runs deep for
some on campus. She said, "I personally
know students who have had to drop out of school
because their parents have lost their jobs in
the financial crisis. To have Dimon as our commencement
speaker is really insensitive." Openly,
discussion has been heard of silent protests planned,
whereby students in the audience might turn their
backs to Dimon during his speech. See the ABC
News article (CLICK HERE).
It is highly doubtful that Dimon will divulge
details on the corruption of JPMorgan under his
leadership, their role with Enron, their sale
of twice as many USTreasurys as issued (read counterfeit),
or the demolition of the third World Trade Center
building that housed their database.

UNRESOLVED
BIG BANK DISTRESS

◄$$$ MAJOR HOME EQUITY LOSSES ARE DUE FOR
THE BIG BANKS. NEITHER COMMERCIAL LOAN LOSSES
NOR HOME EQUITY LOSSES HAVE BEEN LOGGED. THE HOME
EQUITY LOAN LOSSES ARE ASSURED WITHOUT DOUBT SINCE
THEY ARE SUBORDINATE TO FAILED FIRST MORTGAGES
IN DEFAULT OR FORECLOSURES ALREADY COMPLETED.
THE BIG FOUR BANKS HAVE AT LEAST A $100 BILLION
SHORTFALL IN THEIR SECOND LIEN LOAN LOSSES. $$$

The four biggest US
banks by assets (Bank of America, JPMorgan, Citigroup,
and Wells Fargo) hold $442 billion of the $1.1
trillion in second lien mortgage loans, according
to Amherst Securities Group. The Big Four banks
hold 42% of the entire sack of toxic paper from
home equity and second mortgages. Bank analysts
roughly estimate that the Big Four banks must
soon set aside an additional $30 billion to
cover possible losses on home equity loans, according
to CreditSights. The magnitude is enormous,
since it is of a size equaling analyst estimates
of their profit this year. The agency stresses
how such writedowns are unfinished business from
the housing bubble, in their words. Baylor Lancaster
is senior bank analyst at CreditSights in Miami. He said, "While a lot of people are
looking for dramatic improvement in the short
term, one area that still has to be worked through
in a material way is home equity. The banks are
saying that they can work through it. Our view
is that it may be bigger than they are letting
on." He expects the start of such writeoffs
to hit in the latter months of 2010.

The House Financial Services Committee is currently
struggling with the obstacles created by second
lien mortgages, when reworking home loan debt
in USGovt aid packages. A key point on inevitable
bank loss pertains to the nature of these loans.
Second lien mortgages and most home equity lines
of credit rank behind first lien debt in seniority.
They are wiped out in a foreclosure in almost
every case. Home equity loans are open lines of
credit, but still are subordinate. Here is the
obstacle. In many cases, first mortgages cannot
be modified or written down because lien priority
dictates that junior loans be erased first.
Few lenders have agreed to reduce or forgive home
equity loans when modifying mortgages, even if
a property is worth less than the loan balance.
The majority have not written down home equity
loan losses at all.

Denial of further bank loss is prevalent. Nancy
Bush is an independent bank analyst at NAB Research
in New
Jersey. She said, "Banks have been saying
we are close to the end. People have built that
into their expectations. I do not think we are
there yet." A blockheaded naive view
came from Jason Goldberg, a Barclays Capital senior
analyst in New York. He said, "The majority of banks last year saw the
pace of reserve build slow. That trend continues
amid signs of stabilization in delinquency trends
and an improving economy." Goldberg is
wrong on all his points, but efficiently stated.
In this case it means the big banks, Barclays
being one of them, have woefully inadequate loan
loss provisions. Return to reality with Joseph
Pucella, an analyst at Moodys. He expects banks
to keep feeding funds into loan loss reserves
at least through the end of the year, because
they still face losses. Attention has turned.
Second mortgage loans are poised to be a big bump
in the road, said former bank examiner Paul Miller,
an analyst at FBR Capital Markets. He said, "There
is very little recovery for home equity loans."
Focus upon second lien loans finally comes next
after US
banks have taken $294.6 billion in losses related
to credit costs, loan writeoffs, and increased
provisions, according to Bloomberg data. Investors
may still lack confidence that banks have cleared
out the worst of second lien loans, said Jack
Ablin, chief investment officer at Harris Private
Bank, who oversees $55 billion. The scope is grand.
Over half of first mortgages have second lien
loans behind them, admits Laurie Goodman of Amherst
Securities. Those loans add more than 20% of the
value of the property to the amount owed.

Check out the Big Four banks for red ink spilling
on the balance sheets. Even JPMorgan comprehends
the depth of the problem. JPMorgan CEO Jamie Dimon
mentioned investors in their annual report published
in February that quarterly writedowns for home
quity lending could reach $1.4 billion in 2010.
That adds up to record writeoffs of $5.6 billion
this year, 19% more than in 2009 and more than
double the amount in 2008. JPMorgan has set aside
$13.8 billion of loss reserves for the division
holding all of its mortgages. JPMorgan holds
$101 billion of home equity loans, the third largest
amount of any US bank. They report 1.6% of their second
lien loans are non-performing. Bank of America
holds $138 billion of home equity loans. About
$112 billion of them are second liens, equal to
81%. The bank doubled its allowance for loan loss
reserves in 2009, up from $5.39 billion to $10.2
billion a year ago. It wrote off $7.1 billion
last year, up from $3.5 billion in 2008. Wells
Fargo
holds about $123.8 billion of home equity loans,
with about $103.7 billion in a second lien position.
The lender has $5.3 billion in reserves set aside
to cover the second lien mortgage loans and wrote
off $4.6 billion last year. Citigroup has the
smallest home equity credit portfolio of the four
biggest banks with $49.4 billion, hardly a small
figure. CreditSights estimates Citigroup could
face home equity losses of $3.4 billion. These
are loan loss reserves set aside just for second
mortgages and home equity lines of credit! They
go directly against earnings. These banks are
all insolvent and worthless hollow shells whose
only valued assets are their buildings and computer
systems.

Joshua Rosner is an analyst at Graham Fisher,
an independent research firm based in New York. He earned some deserved recognition in
May 2007 when he issued a report that claimed
ratings companies were under-estimating the risk
of subprime mortgage bonds. Rosner concludes
that second lien reserves set aside by the Big
Four banks are $100 billion to $125 billion short
of requirements in the next few years.
He points out the clue for gross inadequacy to
date. Rosner said, "If banks were properly
accounting for their second liens, there would
be no problem with them choosing to do principal
writedowns. They would already be reserved for
it." The Federal Deposit Insurance Corp,
which oversees US commercial lenders and insures
their deposits, demanded with limp wrist in August
that banks consider boosting reserves for potential
losses on home equity loans. The FDIC wrote, "Failing
to properly consider the current effect of more
senior liens on the collectability of an institution's
existing junior lien loans is an inappropriate
application of accounting principles"
in an August 3rd letter to banks and examiners.
The FDIC is a bunch of slackers who carry Wall
Street baggage and open their doors. If
truth be known, the USFed itself has highjacked
the bank reserves, holding them to hide their
own deep insolvency. See the Bloomberg
article (CLICK HERE).

◄$$$ JPMORGAN GOES FACE TO FACE IN OPPOSITION
OF THE OBAMA ADMIN PLAN TO FINALLY PROVIDE HOMEOWNER
RELIEF ON MORTGAGES, WITH ACTUAL LOAN BALANCE
REDUCTION. THE JPMORGAN HYPOCRISY IS CLEAR, AS
HIS MOTIVES ARE ELITIST AND NOT GENUINE. $$$

The battle has escalated publicly between JPMorgan
executives and the Obama Admin. Finally the people
can see an open dispute between the fasicst element
(elite privileged bankers) versus the communist
element (proletariat seizure craftsmen) played
out in view before the House Committee on Financial
Services. The case for JPMorgan Chase is made
by David Lowman, the CEO of their home lending
subsidiary. He argued strongly against the plan
to help homeowners facing foreclosure. He is opposed
the reduction of mortgage principal. He said,
"Like all loans, mortgage contracts are
based on a promise to repay money borrowed. If
we re-write the mortgage contract retroactively
to restore equity to any mortgage borrower because
the value of his or her home declined, what responsible
lender will take the equity risk of financing
mortgages in the future? What responsible regulator
would want lenders to take such risk?"
But then again, a quick check would show that
commercial mortgages are being written down. JPMorgan
conglomerate CEO Jamie Dimon has made it clear
that principal writedown will not be considered,
as he no longer fully backs President Obama.
The bank has paid back fully its TARP bailout
loan. JPMorgan seeks to derail financial reform,
having spent $6.2 million on lobbying to try to
minimize its provisions. In recent weeks, Dimon
has complained about credit card reforms that
will cost the bank between $500 million and $750
million in after-tax income. Dimon also works
to stop the sweeping financial overhaul that could
force JPMorgan and other banks to vastly reduce
their balance sheet and become smaller institutions.
Such is the movement against 'Too Big To Fail'
banks. At issue is the $448 billion in equity
lines and other junior loans held in large part
by the nation's four biggest banks. Principal
would be wiped out in a single justified stroke
in most of the equity lines of credit, all subordinate
to frontline mortgages. The Obama Admin proposal
announced last week allowed only 10 to 20 cents
per dollar for second lien holders. See the Housing
Watch article (CLICK HERE).

At the heart of the dispute are toxic bank credit
portfolio assets. These are signficant portions
held on big bank balance sheets that can be best
described as toxic rot decomposition, fully permitted
by FASB accounting rules to be valued at par value.
The insolvency of JPMorgan and other big banks
might soon be unmasked. The big banks refuse vigorously
to write down their losses on toxic worthless
assets. They would rather let homes go to foreclosure
slowly, collecting fees, swapping certain assets
with the USFed, dumping other assets on Fannie
Mae, and selling some to unsuspecting hedge funds.
Never mind that most experts believe that principal
reduction is the only solution to the foreclosure
crisis. The conferences underway withing the USCongress
explore how equity lines and other junior liens
are thwarting the mortgage modification process.
The big banks do NOT want a solution, since
they do NOT want to reveal the details of their
mortgage bond criminal fraud. Many home
loans were sold and linked to same mortgage, making
overlapping claims to the same income stream multiple
times. Many mortgage bonds had sloppy, incomplete,
or non-existent linkage to home loan revenue stream.
Many mortgage bonds, in particular Fannie Mae
bonds, are total counterfeits sold with no property
title linkage, without restriction, sold fraudulently
with impunity. Most Wall Street mortgage bond
sales are integrally linked with corrupted databases
that hold property titles, which the federal courts
have declared have no legal standing. Those court
decisions have opened the door for homeowners
to stop loan payments and demand to see the property
title. Tens of thousands of people are not submitting
loan payments.

THE FLOOD
OF USTREASURY ISSUANCE◄$$$ THE U.S. BANK LOAN TOTAL
JUST JUMPED $420 BILLION IN ONE WEEK. SOMETHING
IS BREWING, AND SPECULATION IS RUNNING RAMPANT.
LET ME JOIN THAT SPECULATION. $$$

Check out of the vertical line showing a powerful
rise of $421.8 billion dollars of outstanding
loans and leases to commercial banks in a single
week. The main question is just exactly where
did the money go, and what collateral was accepted
against such a huge sum of outstanding loans.
Some calmer heads suggest that the jump in loan
volume was due to the FASB changes to accounting
rules, that have led to securitized loans returning
to the bank balance sheet. No comment or news
release has come from the USFed, to explain the
sudden change. One must wonder what will be the
effect on bank reserve capital ratios and debt
to equity ratios. Additional capital would normally
be needed to support items on the balance sheet.
It is very doubtful that huge volume off-balance
sheet assets will be returning to US bank balance
sheets. See the 321Gold article (CLICK HERE).

Karl Denninger makes some hypothesis that the
entire European continent was just bailed out
by the USFed. What an incredibly silly naive charge!
The guy is a really smart dumbkopf. He is great
at gathering information and putting it on the
table. But he often makes a bonehead conclusion
or dismisses corrupt realities along the way.
If any huge credit lines were extended regarding
the European sovereign debt crisis, it was probably
the USFed aiding Wall Steet firms to short government
bonds. They might have funded gargantuan shorts
against Greek, Spanish, Italian Govt bonds in
one svelte swoop. The USFed is all about providing
giant assists to Wall Street, where its partners
are located within the syndicate. The effect of
rescue aid packages handed to Greece only serve
to add to liquidity in bond sales, which Wall
Street firms routinely and profitably short. That
is precisely why the bond yields rise after the
auction sales, every single time.

One very big certainty is the failure of these
three Southern European nations, where debt default
is assured. Perhaps Wall Street just received
funding to the gills in Credit Default Swaps that
will turn wildly profitable when the sovereign
defaults occur. One other possibility could be
the case. Perhaps the USFed just funded offsets
to huge JPMorgan losses from Interest Rate Swaps
gone toxic with the rising long-term rates.
For that matter, maybe Fannie Mae with the IRSwap
funded losses was also funded in offsets, even
American Intl Group too. In my honest opinion,
Denninger could discover a big leather shoe in
front of the USFed and conclude it is rock solid
proof that Wall Street Chief Financial Officers
have taken up residence in the grand shoe. More
rational observers might conclude that credit
derivatives have burned through so much Wall Street
capital that their officers lost their shirts,
and shoes too. Denninger has a knack for producing
excellent evidence in stream, but arriving at
the wrong conclusions, to prove the dog can hunt
but cannot intrepret events.

◄$$$ A USTREASURY AUCTION GOES BADLY AGAIN,
AS DIRECT BIDS HIT A HIGH LEVEL, BUT INDIRECT
BIDS HIT A HIGHER LEVEL. CONFUSION IS THE ONLY
CONCLUSION. THE STATISTICAL TALLY NO LONGER CAN
BE CLEARLY INTERPRETED. $$$

Ok, so a scad of USTreasury Bonds with 30-year
maturity were auctioned on April 8th, paying a
4.770% final yield. The bid/cover ratio was a
weak 2.73, when 2.0 would mean outright failure.
Direct bidders took a massive 25.48%, more than
double their 11.24% average. Indirect bidders
took an even bigger 36.80%, half again higher
than their 23.85% average. It used to be that
direct bids came from pension houses, insurance
firms, and bond funds. Not anymore, after incredible
confusion has come to the USTreasury market. It
is impossible anymore to interpret the bidding
trends and changes. See the Direct Bid chart.
Who knows what it means? Surely not the smartest
guys the Jackass knows, with long years of bond
experience. The story is the confusion, not the
chart and ratios on display.

In the last two years, profound changes have
taken place. The Caribbean Centers have morphed
into crime syndicate platforms to conceal heavy
outsized monetization during monthly auctions
of $20 billion or $30 billion or $40 billion,
or $50 billion, or more. In no way are these
amounts that the credit market can handle. So
the US Printing Pre$$ responds, via the hidden
centers. One cannot say whether even PIMCO, the
bond giant fund, or other very large bond houses,
use Caribbean locations to
obtain a better price with a secretive hand assisting
them by the USGovt. One cannot determine whether
the Caribbean agencies are
loaded with offices from both the USFed and Bank
of England, with false store fronts. Probably
so. One cannot determine if these locations are
sovereign entities like foreign central banks,
pension funds plying their trade, or even US
security agency narcotics funds filtering money
back into the system. What is clear is that a
vast shell game is at work, with grotesque obfuscation
and confusion generated intentionally. The authorities
in charge of USTreasury auctions are attempting
to create enough confusion to hide enormous monetization
of USGovt bond purchases. The data is no longer
comprehensible. The irony is that the bankrupt
banks in London, with nexus the Bank of England, are bailing out the USGovt. Huge
increases are evident in the Treasury Investment
Capital (TIC) Report, that England
is buying huge amounts of USTreasurys! With what?
They are in my view the nexus of the USGovt self-dealing
in monetized USTreasury Bond purchases using the
US$-based Printing Pre$$. London
billionaires are major owners of the USFed itself.
They are not hiding their tracks too well, but
they have effectively created terrific confusion.
Lines are blurred, and legitimate interpretation
is impossible.

Upcoming scheduled USTreasury auctions are like
a string of yard sales in a stressed out neighborhood.
It is a bonanza, with a whopping $53 billion to
be auctioned on April 12th, and over $150 billion
within a week afterwards. In no way are maturities
extended as promised. They want, nay lust, for
the lower short-term yields in commitments. The
month of April will see a total of over $250 billion
in net issuance among USTBills, USTNotes, and
USTBonds. That follows the $333 billion in March.
No way can a normal market handle that volume
of supply without vast monetization reliance and
hidden money creation. The list of of upcoming
USTBill auctions over the next week look like
this:

April 12, $26 billion in 3-month Bills

April 12, $27 billion in 6-month Bills

April 13, $26 billion in 4-week Bills

April 14, $25 Billion in 56-day Cash Management
Bills

April 22, $TBD billion, in 3-month Bills (likely
$26 billion)

April 22, $TBD, in 6-month Bills (likely $27
billion)

by the way, TBD means to be determined

Furthermore, the US
stock market is no clearer. A decade ago, market
observers could check the New York Stock Exchange
database to see a summary of computer program
trade activity. The percentage peaked near 75%
of all NYSE volume, until they stopped reporting
it. In recent months the high frequency trades,
including the illicit insider trading tools used
so effectively by Goldman Sachs, have tilted the
program trade percentage probably closer to 80%
or 85%. But the public will not be told. My best
description of the stock market is of a grand
fraternity circle jerk. The parasites are feeding
off other rival firms. The stock and bond markets
have never been less transparent.

◄$$$ USGOVT DEBT ISSUANCE IN MARCH WAS
A RECORD. IF ITS MARCH PACE IS REPEATED OVER THE
COURSE OF A FULL YEAR, AROUND $4 TRILLION WOULD
BE ISSUED. SOME REACTIONS ARE ASSURED, ALL BAD
FOR THE USTREASURY COMPLEX AND THE USDOLLAR. AN
IMPLOSION IS IN PROGRESS. $$$

The beat goes on. The destruction of currency
continues. In March, the USGovt issued an incredible
amount of debt totaling $332.8 billion. That
is not a misprint, it reads three hundred and
thirty two point eight billion dollars! That is
the grandest sum ever since the record amount
of $545 billion raised during the peak of the
financial crisis in October 2008. The USTreasury
held $12.717 trillion in debt at the end of March,
compared to $12.384 trillion in the beginning
of the month. The limit of $12.9 trillion fast
approaches, at which time the corrupt compromised
clowns in the USCongress must extend the limit
on federal debt one more time, and earn a great
deal more publicity. The debt transfer is going
as planned, from the private Wall Street hands
to the ruined public balance sheet of debt with
future obligations. The ruinous parade continues.
The shadow banking system turns its wheels in
hidden fashion, greased by credit derivatives
that sustain such flow. The evidence of fiat currency
failure continues to be plastered upon public
billboards and chartroom walls. The central bank
franchise system has failed under our noses, a
story not told. The total outstanding debt (in
red line) climbs relentlessly, undeterred by any
hint of recovery, as each month racks up another
debt (in blue bars) seen in the following chart.
See the Zero Hedge article (CLICK HERE).

◄$$$ USTREASURYS BREACH THE 4.0% MARK.
IMPACT IS EXACERBATED BY INVESTMENT HOUSE HEDGES
ON MORTGAGE PORTFOLIO MANAGEMENT. THEY REACT BY
SELLING USTREASURYS. THE CONVEXITY WORKS NEGATIVELY
IN THE OPPOSITE FASHION TO 2002 & 2003 WHEN
IT WORKED POSITIVELY. THIS IS THE GREAT UNWIND.
EXPECT FIERCE OPPOSITION BY JPMORGAN ACTING AS
AGENT FOR THE USGOVT AND USDEPT TREASURY, USING
INTEREST RATE SWAPS, USING PLUNGE PROTECTION TEAM
PURCHASE OF USTREASURY BOND FUTURES, AND MORE.
$$$

The 10-year USTreasury Note yield (TNX) touched
4.0% in the last two weeks. The news generated
concern, noted by the Jackass also in a public
article. The event also marshalled forces to oppose
it. The TNX has since come down to near the 3.8%
level. The relief has enabled the Dow Jones Industrial
Index to push above the 11,000 mark. My view is
that the major US stock indexes are a concurrent indicator of
the USDollar. A weak US$ permits a higher Dow
stock index. Many serious worries come with higher
USTreasury yields. The threat to stock valuation
is obvious from pricing models. Going hand in
hand is the threat that mortgage rates will rise
enough to harm home sales even worse. A strange
effect is also at work. Homeowners will repay
their mortgages at a slower rate, since refinanced
loans will halt. Thus the investors will hold
mortgage bonds for a longer period. The typical
strategy employed by large investors like mortgage
finance firms is to hedge the interest rate risk
and the early mortgage repayment risk. The
firms execute the hedges by selling USTreasurys
and selling USTreasury Bond futures contracts.
The effect is to push USTBond yields higher still,
which could also send mortgage rates higher, undoing
the efforts by the USFed to hold the mortgage
rates under 5%. The unwind of hedges is called
the Convexity Effect, and it is as powerful as
it is perverse. BY FAR THE MOST PERVERSE CONSEQUENCE
OF HIGHER USTREASURY BOND YIELDS IS THE URGE FOR
THE WALL STREET MAESTROS TO SEND DOWN THE STOCK MARKET IN ORDER TO PRODUCE
HIGHER DEMAND FOR USTREASURYS. They have all the
tools and experience, along with the fascist partnerships
(meaning merger between state & corporation).
See the Wall Street Journal article (CLICK HERE).

CREDIT DERIVATIVES FIRES BURN

◄$$$ CREDIT DERIVATIVES ARE CAUSING AN
ENORMOUS HIDDEN FIRE, AS LONG-TERM INTEREST RATES
RISE SLOWLY. MUTUAL DAMAGE IS DONE FROM THE CREDIT
DERIVATIVES WITH USTREASURYS AND MORTGAGE BONDS,
THE GREAT HIDDEN BLACK HOLES. POSSIBLY TRILLION$
OF NEW MONEY FINANCES THE BLACK HOLES. DYNAMICS
WITHIN CREDIT DERIVATIVES GENERALLY HAVE SUFFERED
MASSIVE CHANGES, RESULTING IN CATASTROPHIC LOSSES
FOR THE BIG FOUR BANKS. $$$

The monetization to put out the ongoing endless
credit derivative fires is not measurable, possibly
in the tens of trillion$. Proof of a killing field
in our presence is difficult when it comes to
credit derivatives. They do their work under the
creaking and broken financial structures out of
view. Wall Street firms basically created a system
of contracts that exploited the demise of the
financial system itself, whose destruction they
were largely responsible for. My suspicion
screeches loud, that the biggest banks are being
crushed under the weight of Interest Rate Swaps.
The evidence is indirect, seen in the form of
negative swap spreads. The Interest Rate Swap
credit derivative market must be suffering from
powerful hot fires as long-term rates rise and
spreads turn negative. As usual, the financial
press ignores the negative swap spread story.
They would not know how to describe it anyway.
According to the BIS that publishes such data,
the volume of IRSwap contracts was roughly $154
trillion in a June 30th report. The Greek bond
debacle and various sovereign Credit Default Swap
contract discussions could actually be lesser
events by comparison. The veteran bond traders
are quick to point out, how the likelihood of
negative spreads having been hedged effectivly
by the massively large banks is very low.
Thus their unhedged bank IRSwap exposure is massive,
and must be burning through capital at a rapid
rate. Record losses are probably being registered.
Zero Hedge reports about rampant rumors
of a few of the trading desks having placed leveraged
bets on spread divergence over the past months
and years that are currently in critical condition.
Yet nobody is discussing this for fear of another
round of bank runs directed at the big banks.
Complex factors are being interpreted to mean
that banks satisfy all of their short-term funding
needs via the ready shifting of excess reserves.
Therefore, the USFed hike in the discount rate
was a most irrelevant stroke. And just in case
there is still confusion as to what negative swap
spreads mean, here is a useful primer.

The IRSwap spread is defined as LIBOR rate minus
the USTreasury Note yield, in other words the
10-year LIBOR rate minus the 10-year USTreasury
Note yield. Pardon the edits, to enable clear
reading. They say height of the crisis, but could
mean height of the circus. Morgan Stanley Research
wrote, "The big news is that 10y swap
spreads have fallen below zero. This spread has
always been positive, but today it is negative,
implying that UST 10y yields have risen above
10y Libor rates. But the bigger questions are
how do we define value in spreads and how much
more inverted can 10y spreads go? At the height
of the crisis in 4Q08, 30y swap spreads got to
minus 41bps and have remained inverted ever since.
The inversion of 30y spreads had more to do with
technical, exotic, and hedge related factors.
But those elements are missing from the inversion
of 10y spreads. That is what makes it interesting.
Today we view the inversion in 10y swap spreads
as a harbinger of the massive supply of UST debt
that will ultimately drive yields higher."
REPEAT THAT LAST LINE. CONDITIONS HAVE BEEN CREATED
FOR THE MASSIVE SUPPLY OF USTREASURY DEBT TO LIFT
LONG-TERM BOND YIELDS MUCH HIGHER!! But that is
only their opinion, a position held for almost
a year. They might vastly under-estimate the power
of JPMorgan, with unlimited money creation to
support the Interest Rate Swap contracts.

The technical factors are difficult. Zero Hedge
explains, "The first point argued that
Libor rates should be higher than UST rates because
there was a 'repo-specialness' premium between
UST's and Libor. The second point refers to corporate
issuance: if the curve steepens, then corporations
are more likely to swap their long-term liabilities
at higher rate levels into short-term liabilities
at lower rate levels. The last point refers to
the relative level of UST issuance. If the US
economy slows and goes into a deficit, then the
US will issue more Treasuries to fund itself,
therefore narrowing swap spreads." The
picture is one of debt security saturation, against
a backdrop of phony LIBOR posted rates. If nothing
else, the following two series chart confirms
that no USEconomic recovery is in occurrence.
The inversion might actually loudly scream that
a powerful deterioration is in progress.

Much of the bond structure has changed beneath
the visible platforms, with profound alterations
coming from the credit derivatives relied so heavily
upon. Notice the comments about speculation, not
hedging, forcing important changes to the structures.
My view is that speculation has rendered the IRSwap
as no longer defensible, when its magnitude for
defense of the USTreasurys has gone berserk to
begin with. Historically, the long-term bond yield
should be 2% to 4% above the prevailing price
inflation rate. So long-term yields should be
in the 7% to 10% range. BUT THEY HAVE NOT BEEN
FOR YEARS, a testimony to the enormous magnitude
of IRSwaps at work. Perhaps the extra large USFed
hand has ruined the entire mortgage hedge framework.
Morgan Stanley Research wrote, "Later
in the 1990s and over the last decade, the
swaps market took on increased importance not
just as a hedging vehicle, but also as a speculative
vehicle. What drove swaps over the past 10
years has been hedging the interest rate sensitivity
in mortgages. But today, a case can be made that
mortgages are less interest rate sensitive than
in the past (i.e. less negatively convex). The
reason is that households may be less able to
refinance their mortgages for a given change in
interest rates, because refinancing is more related
to FICO scores, credit availability, loan-to-value,
incomes, etc. We believe swap spreads will narrow
and remain inverted as interest rates have stayed
low and stable, volatility has fallen, spread
products have been narrowing, and there is little
hedge related need to pay fixed in swap. Add to
that the old-time reasons, which are becoming
more popular drivers of swap spreads today, of
reduced specialness premiums, tighter REPO-LIBOR
spreads, steeper yield curves and monstrous USTreasury
supply. All of which become the contributors to
10y swap spreads moving negative. Oddly, the tight
level of swap spreads is a look back into the
future. But the inversion of spreads is the new
twist."

The Morgan Stanley conclusion is that USTreasury
yields are poised to spike upwards. To be sure,
their firm has been pushing for high rates and
major curve steepending for a while. Recall it
is their call that the 10-year USTreasury will
hit 5.5% this year. They wrote, "The issuance
of UST debt is dwarfing LIBOR-related issuance.
For example, we expect UST net issuance to be
$1.7 trillion and net issuance of MBS to be zero.
Thus, the relative issuance of USTs versus
LIBOR-based products mainly accounts for the inversion
in swap spreads. This is a first sign of stress
leading to higher UST yields and is not to be
missed." One must wonder if Morgan Stanley
is overlooking massive JPMorgan monetization of
the USTreasurys, hedging in the process with Interest
Rate Swaps, doing the USGovt bidding behind the
curtains. Also one must wonder if they overlook
the phony numbers in LIBOR itself, which have
been accused of gross inaccuracies for two years.
Zero Hedge implies their disagreement with the
Morgan Stanley conclusion of much higher long-term
rates coming.

A very significant loss could be imminent
to some of the Big Five US banks, whose hint is the highly unexpected
inversion. The total IRSwap volume of $154
trillion is not vulnerable to the inversion condition
beyond the seven-year timeframe. The Office
for the Comptroller to the Currency does indicate
that there is $27 trillion in Interest Rate Swaps
outstanding with a maturity greater than five
years. While JPMorgan, Goldman Sachs, Bank of
America, Citigroup, and Wells Fargo have about
$131 billion in IRSwaps of all types among them
in total. Take a close look to see that JPM, Goldman,
and BOA have $9 trillion, $7 trillion, and $5
trillion in IRSwaps over five-year timeframe.
This is very troubling and might paint a picture
of a massive nightmare or scheiss storm directly
ahead. No wonder the USCongress, under the
Goldman Sachs thumb held by the USDept Treasury,
has written new backstop guarantees for Wall Street
firms totaling $5 trillion. The amount dwarfs
the TARP backstop by a factor of seven. The irony
is that the huge sum might not be enough. They
might have picked the number arbitrarily, like
the $700 billion size of the TARP funds. Break
out the magnifying glass for the table, Gertrude.

Huge questions must be posed, billboard type
questions. 1) How big the exposure to negative
swap spreads? and 2) what the portfolio loss impact
as a result of this unprecedented spread inversion?
See the spectacular Zero Hedge article (CLICK
HERE).

RESUMED HOUSING
& MORTGAGE SLIDE

◄$$$ MOODYS HAS BEEN BUSY. THEIR RESIDENTIAL
MORTGAGE DOWNGRADES INVOLVE A STAGGERING $1.9
TRILLION IN CREDIT PORTFOLIOS. MOODYS IS DOING
ITS PRINCIPLED JOB OF ASSIGNING PROPER STATUS
ON TOXIC DEBT, WHILE THE BANKS DO THEIR DISHONORABLE
JOB OF CONTINUING TO HOLD SUCH TOXIC DEBT AT PAR
VALUE. $$$

At times, the rating agencies do their job. Moodys
has just downgraded a whopping $1.826 trillion
in 18 residential subprime mortgage backed securities
(MBS) tranches. They were issued by BNC Mortgage
Loan Trust. The property collateral backing the
bonds is from residential mortgages of several
types, first lien, fixed rate, and adjustable
rate subprime. The agency Moodys also downgraded
another $30 billion in other residential MBS tranches
issued by numerous financial firms, such as First
Franklin, Citigroup Mortgage Loan Trust, Park Place, First NLC, RASC, and RAMP. One might be amazed that nearly
$2 trillion in subprime still floats in the credit
market. The need for bank asset writeoffs is sharply
reduced as a result of the FASB allowance that
toxic worthless debt securities can be carried
at par on the bank balance sheets, or at any value
they deem, like from valuation models using income
stream and ignoring market value. The credit market
for almost a full year has operated on vapors,
myth, deception, fraud, vast USFed facilities,
money laundering, extorted federal funds, and
gobs of hope. Recall the Obama campaign promise
of much more transparency. Instead the nation
has seen more bank welfare, continued endless
war funding, health care, and possibly soon a
value added tax. See the Zero Hedge article (CLICK
HERE).

◄$$$ U.S.
HOUSING PRICES HAVE RESUMED THE DECLINE. IMPACT
ON THE USECONOMY IS AS CERTAIN TO OCCUR AS IT
IS TO BE DENIED. THE GROWTH BUILT ATOP THE HOUSING
BUBBLE WILL CONTINUE TO CAUSE WRECKAGE. $$$

The housing bear market continues to run downhill.
US house prices declined 0.6% on a seasonally
adjusted basis from December to January, according
to the Federal Housing Finance Agency (FHFA) monthly
house price index. They actually included
in their report a warning that the Double Dip
in housing prices has possibly arrived. The January
decline follows a 2% decline in December. Current
prices are marked to be near the October 2004
level. Recent surges in excess home supply from
bank owned repossessions are pulling prices down.
The graph below shows a compound growth rate of
3.5% consistently, interrupted since 2006-2007.
The US
housing market is in a decline, both in activity
and prices, without much denial, except from USGovt
agency and US banking leaders. Paul Dales is the
US economist at the Toronto office of Capital Economics. He said, "A double
dip in prices has already begun, and in the space
of just two months, it has more than reversed
the increases of the previous year. We first
predicted a double dip in house prices at the
start of February, but even we did not think it
would come this soon. The housing market may remain
a noose around the neck of the US
economy for some time yet." It comes
more quickly and more powerfully than the supposed
experts anticipated, but right on schedule as
the Jackass expected. Tax credits cannot sustain
a market with such a huge overhang of unsold supply,
that actually grows.

The graph starts in 1991, with one tick per year
to the present. The reduced February existing
home sales exhibit a reversal in previous gains
artificially produced by the homebuyer tax credit.
Dales pointed out few signs of a sustainable housing
recovery and more signs of stress. The official
home inventory rose to 8.6 months supply, but
it is understated due to unaccounted actual inventory
held on bank balance sheets, from foreclosures.
Banks stubbornly refuse to liquidate into a weak
market. The record low mortgage rates have accomplished
little except to hold back the decline in prices.
Dales estimates another 5 to 6 million homes will
be foreclosed on during this entire cycle, which
in my view has been and will continue to appear
to be endless. My forecast is for prices to come
down another 15% to 20% in this cycle. They will
be pushed down by the commercial sector very soon.
See the Housing Wire article (CLICK HERE).

◄$$$ FANNIE MAE SHOWS A SHOCKING DELINQUENCY
RATE, DOUBLE THE LEVEL ONE YEAR AGO. FREDDIE MAC
SHOWS A SHOCKING DELINQUENCY RATE, DOUBLE THE
LEVEL ONE YEAR AGO. THE COMMERICAL MORTGAGE DELINQUENCY
RATE IS AT A RECORD LEVEL, FAST APPROACHING THE
ORIGINAL SUBPRIME RATE OVER TWO YEARS AGO. FLORIDA REMAINS A LEADER IN DELINQUENCY. $$$

All talk of economic recovery must begin with
a sanity check of mortgage delinquency. The USEconomy
growth spurt in the last decade was as phony as
any bubble based episode, just as fleeting, but
with an extraordinary climax bust. Fannie Mae
reported its January serious delinquency rate
(DQ) for single family houses. The rate hit
a new record of 5.54%, a notable rise from the
December 5.38% DQ rate, and double the 2.77% rate
posted in January 2009. Bear in mind the USFed
has claimed to be moving away from outright subsidies
to the mortgage bond market in the form of official
monetization programs. Many bank analysts claim
the USFed has been the mortgage market
in recent months!! The new mortgage bond issuance
has been on the slight decline, a double edged
sword to be sure. Only $43.9 billion in mortgage
backed securities (MBS) were issued in February,
fully 7% less than the $47.6 billion in January.
The current challenge is for the USFed to find
private buyers given that the USFed as USGovt
proxy attempts to step aside, no more subsidies.
A staggering accounting item must be mentioned.
The Fannie Mae total book of business grew at
a 1% annualized pace to $3.230 trillion, but the
actual guaranteed MBS and mortgage loans declined
at 0.9% to $2.882 trillion.

On the very next day, Freddie Mac announced
its total delinquent loans hit a record high at
4.08%, an increase from the January 4.03% DQ rate,
and double the 2.13% rate in February 2009.
Despite trillion$ being throw at the housing market
and the banking system for mortgage portfolio
swaps, the delinquencies continue to head upwards.
The financial markets should focus more on key
indicators within the mortgage and housing market,
like rising DQ rates and still falling home values.
Instead they look at pending sales and housing
starts, distracted by expert claims without grounds
that the market has stabilized. Reduced fiscal
and monetary stimulus programs do not necessarily
translate into normal times. Instead, they spell
heightened risk of a market crash, again.

The commercial mortgage backed securities have
their own distress levels of significance. The
month of March recorded the fastest rise in the
CMBS delinquency rate in history. The breadth
of the property market solvency is horrible. Commercial
real estate is in deep trouble, a fact marred
by record high downtown vacancy rates. RealPoint
published its March CMBS delinquency data. The
commercial DQ rate hit a record high 6% for the
month. According to competitor tracking agency
TREPP, the commercial DQ rate is even higher at
8%. They both cited the biggest monthly spike
ever in delinquencies over 30 days. See how the
breadth is uniform across commercial property
types. The DQ rate has jumped roughly four-fold
in each category. Lodging (hotels & motels)
and retail (shopping malls) registered the biggest
jump.

The Florida 90-day delinquency
rate hit 19.4%, more than double the US national DQ rate of 8.78%, confirming the
Sunshine State as ground zero. The housing
crisis and mortgage debacle continues its wreckage,
whose path includes California,
Nevada, Arizona, and Georgia. Florida
leads the housing bust with the highest delinquency
rate of any state. The First American CoreLogic
report shows the mortgage delinquencies have skyrocketed
in the last year. From February 2009 to February
2010, the DQ rate shot up radically in Florida
from 10.84% to 16.96% of all residential mortgages.
The USGovt sponsored programs to halt the foreclosure
movement, like the Making Home Affordable, have
been ineffective.

The impact on the big banks is soon to be felt
with greater force and magnitude. They have been
carrying a raft of foreclosed homes on their balance
sheets for over a year. They can play accounting
games all they wish, with USGovt blessing, but
the reality is a severe bloat and grotesque distress.
Pressure to relieve the distress is acute, by
means of basic supply versus demand and the need
for the market to clear. Bank of America recently
announced it will significantly increase the foreclosures
in the year 2010. Enough is enough. Liquidation
in full bore volume is a long way off. But the
process might begin with some large banks. See
the Calculated Risk article (CLICK HERE).

◄$$$ RICK ACKERMAN EXPECTS ANOTHER 35%
HOUSING PRICE DECLINE OVER THE NEXT FIVE YEARS.
HE CALLS THE LOAN MODIFICATIONS NOTHING BUT ATOMIC
BOMBS. $$$

Rick Ackerman is a sage sharp analyst. He calls
the loan modifications nothing but atomic bombs.
He points to Bank of America, and makes direct
inferences. The new gesture by Bank of America,
for instance, reeks of desperation. If BOA
is willing to take 20% in loan balance reductions,
they must believe with conviction that the home
prices are worth a quantum amount lower, like
30% to 35% or more. Ackerman wrote, "Although
Bank of America has won praise from the news media for
offering to reduce the mortgages of tens of thousands
of underwater homeowners, Rick's Picks readers
were less kind in their assessment of the new
relief program... We ourselves had called mortgage
modification the most consumer oriented idea to
come out of the banking sector since the real
estate crash began in 2007. We had not intended
to sound so kind, since no matter what rescues
are tried, we still expect real estate prices
to fall by a further 35% before deflation has
run its course in perhaps five to seven years."
Ackerman referred to one reader who posted
in the forum. The man saw the BOA plan as an act
of desperation, their only hope of keeping foreclosed
assets from being liquidated at street value.
The true street market value must be MUCH LOWER.
The bank is leveraged so highly that they have
no choice but to write down 20% rather than take
more significant credit losses, given that leverage.
My view is that a quiet race is starting, to reduce
home loan balances and halt a flood of liquidation
that could grow out of control and kill a few
very large banks.

Almost 500 thousand struggling loan customers
have not supplied information in order to qualify
for mortgage aid within the HAMP program. About
50% of them, as in 250 thousand people, have not
made a payment for more than a year, or are underwater
by at least 50% of the value of their homes.
The guidelines for servicers participating in
HAMP stipulate that the borrower must submit a
Hardship Affidavit. The document serves as their
sworn testimony that they have been driven into
default due to some particular hardship encountered,
and despite making every possible attempt, they
can no longer "maintain payment on the
mortgage and cover basic living expenses at the
same time." This is according to the
HAMP Directive. My belief is that they distrust
the federal programs, comprehend that they are
mere revolving doors of default, and wish not
to wake the sleeping dogs. They hope to remain
undetected in scoffing at home loan payments.
They are living with free rent. See the Calculated
Risk article (CLICK HERE).

◄$$$ THE NEW & IMPROVED USGOVT LOAN
MODIFICATION PLAN IS BUT AN OPEN WINDOW FOR REDEEMING
TOXIC MORTGAGE PAPER FOR BANKS, USING A TAXPAYER
CHECKBOOK. NOTHING CHANGES, JUST THE HOPE &
HYPE. BIG BANKS WILL HAVE AN EASIER TIME SWAPPING
TOXIC PAPER FOR NEWLY DEVISED USGOVT INSURED BONDS.
$$$

They call it the next USGovt mortgage modification
plan, but it is just a streamlined window for
converting toxic mortgage bonds to USGovt insured
bonds, but with an incentive to reduce loan balances
finally. The boatloads of mortgage bonds out
there, not labeled subprime as such, but surely
smelling like subprime rotting papyrus, can soon
be convertible to AAA FHA-backed loans. The
key is that banks and financial firms can swap
insolvent loans for higher quality paper, if one
regards USGovt backing as bearing value. The crafty
players are grabbing all the garbage mortgages
in circulation, preparing for a nice payday in
the conversion to FHA loans. The handoff is but
a new FHA window to be created, due to gain wide
usage. The new program offers incentives to
banks and other wealthy investors in mortgage
backed securities (MBS) to cut generously the
principal on underwater mortgages which keeps
people from strategic default or foreclosure.
In return for accepting a loss on the portfolio,
a conversion takes place to an FHA-backed loan
when the loan goes into the refinance stage. The
haircut, an immediate loss to banks, comes with
an explicit USGovt guarantee. The tradeoff is
the credit loss on the face value of the mortgage
bonds, the same market for MBS bonds that will
enjoy a revival. Demand will grow for garbage
toxic mortgage bonds, since they are soon convertible.
The moribund securitizations (MBS) will enjoy
some resuscitation, with some principal gains.
The new Obama Admin mortgage modification program
is not so much aid for homeowners as it is a different
form of bailout for banks holding MBS bonds hard
to move in a dead market. Time will tell if
loan reductions are more than tiny irrelevant
amounts gaming the system to qualify for refinance
into AAA bonds. Savvy speculators are combing
through their rotten portfolios looking any toxic
paper they can find to dump on Uncle Sam in his
Federal Housing Admin window. Over 167 thousand
home loans are currently in a process of modification.
See the Zero Hedge article (CLICK HERE).

THE TINY USECONOMIC
BOUNCE

◄$$$ JOBLESS CLAIMS MARCH ONWARD, CLEAR
TESTIMONY TO NO RECOVERY WHATSOEVER. CHRONIC UNEMPLOYMENT
HAS DOUBLED FROM A YEAR AGO. PERSONAL BANKRUPTCIES
WERE UP 9% FROM MARCH 2009, BUT THE PROPORTION
OF CHAPTER 7 BANKRUPTCY FILINGS IS UP TO THREE
QUARTERS. PEOPLE SHOW SIGNS OF GIVING UP AND LOSING
THEIR HOMES. THE A.D.P. REPORTS SLIGHT MARCH JOB
LOSSES IN THE PRIVATE SECTOR. THE USGOVT JOBS
REPORT HAS BECOME A LAUGHING STOCK, CLAIMING A
BIG RISE IN NET NON-FARM JOBS. $$$

Jobless claims are without a doubt the best indicator
of economic recovery, difficult to gimmick. Over
400 thousand new people each week continue to
file for unemployment insurance. The number
of people applying for unemployment benefits rose
to 460k in the week ended April 3rd, the USDept
Labor reported. Fully 439k new people filed
jobless claims in the week ended March 27th. The
number was on par with the March 20th week when
445k filed claims. The data series is steady,
without a hint of recovery. Big corporate monitor
Challenger Gray & Christmas showed that planned
job cuts accelerated substantially in March.

For the week ended March 27th, continuing
claims were measured at 4.55 million. The
four-week average of these ongoing claims declined
36k to 4.65 million, the lowest level since January
2009. This is a good sign, but still the chronic
jobless make a large number. In the week ended
March 20th, about 5.8 million jobless workers
received extended federal benefits, down 223k
from the prior week. Regard extensions as
another excellent distress signal. Altogether,
11.1 million people collected some form of unemployment
benefits in the week ended March 20th, down about
373k from the previous week. The Easter holiday
does skew the data a little. See the Market Watch
article (CLICK HERE).
The ranks of long-term unemployed continue to
hurtle upward, and even set an historical record.
As of March, over 6.5 million Americans remain
without a job for at least six months, an all-time
high, according to the USDept Labor. The
shocker is that the number without employment
over six months is more than double the amount
this time last year. No sign of recovery.
See the Huffington Post article (CLICK HERE).

The federal personal bankruptcy law was made
tougher in October 2005. More Americans filed
for bankruptcy (BK) protection this March than
during any month since that time of altered law.
A report was just released by Automated Access
to Court Electronic Records, a data collection
company. Federal courts reported over 158 thousand
BK filings in March, a brisk jump of 35% from
February, and a jump of 19% over March 2009.
The March data exceeded easily the previous record
over the last five years at 133k last October.
No evidence whatsoever of recovery. The nature
of the BK filings has changed, a qualitative change
for the worse. It indicates less hope and more
cases of losing homes altogether. The Chapter
7 filings, a simple and inexpensive option, are
rising faster than more complex Chapter 13 restructure
filings. The messier Chapter 13 reworks the
debt payment with reduced debt balances, according
to income, in such a way to permit people to keep
their homes. Therefore, more homeowners are simply
walking away from mortgages that are underwater,
whose debt exceeds home value, in despair.

Katherine Porter is a University
of Iowa law professor
and bankruptcy expert. She said, "Fewer
people are trying to save their homes. They realize
their payments are not affordable, and bankruptcy
judges do not have the power to adjust the mortgages
to make them more affordable. We think that means
fewer and fewer families believe they are really
going to save their homes. They do not have any
equity, so why try to keep up with their home
payments? To file Chapter 13, you need ongoing
income, and to the extent we have more people
who are unemployed, they cannot use Chapter 13
because they do not have that income to pay into
the plan. People use their tax refunds to pay
their attorney fees." The ratio data
on BK filing type is clear in the trend. The US
Trustee Program within the USDept Justice oversees
bankruptcy cases. Their data shows Chapter 7 filings
as a ratio of all bankruptcies have increased
to about 73% in year 2009 from about 62% in year
2006. The data for March is similar, with 75%
entering into Chapter 7 filings of the 158,141
total BK filings in March. Interpretation is
vivid and tragic, as people have begun in droves
to abandon hope on keeping their homes. March
is a popular month to file since tax refund checks
can be directly used to cover BK lawyer fees.
See the New York Times article (CLICK HERE).

The ADP Employer Services report claimed that
private sector employers shed 23 thousand jobs
in March, surprising economists who expected job
growth last month. Big losers in the ADP report
were the construction industry, which lost 43K
jobs in March, and factories with 9k jobs lost.
On the plus side, the service sector added 28k
workers last month. The ADP is simply stated a
much more reliable report, a better gauge, than
the silly discredited Bureau of Labor Statistics
sham that receives so much attention. The ADP
focus is on the private sector, avoiding the government
sector entirely. In the skewed BLS prominent report,
many temporary jobs are included, like the hiring
of over 600k census workers by the USDept Commerce.
See the Washington Post article (CLICK HERE).

The official March Jobs Report purported that
162 thousand net growth in jobs, amazingly. But
they resorted to a mythical +81k jobs produced
by their stat lab in the Birth-Death Model. It
has no validity at all. They should tell the US public where those
jobs are located, especially the layoff victims
who file for unemployment insurance. The Shadow
Govt Statistics folks estimate a 250k positive
bias in each monthly payroll calculation in Jobs
Reports. In fact, the annual Bureau of Labor
Statistics benchmark revision, published in January
2010, featured massive revisions and an admission
that their methods missed countless job losses.
But the Birth-Death Model is politically useful
and continues to be used. Massive revisions occur
every year at the same time. Nobody cares. They
figure jobs grow at small companies even after
they shut down, since they do not bother to monitor
the shutdowns. The official February USGovt unemployment
rate was 9.7%, down from its recent high of 10.1%
in October. The official U6 jobless rate that
includes discouraged workers remains high at 16.9%,
down a little in recent months. The more reliable
Shadow Govt Statistics measure of the jobless
rate is 21.7%, not much change in recent months.
The labor market shows no signs of recovery.

◄$$$ THE GROSS DOMESTIC PRODUCT COLLAPSE
IN THE UNITED STATES CONTINUES, BUT WITH SLOWER
DECLINE. THE FEDERAL DEFICITS CONTINUE TO GROW,
WHILE THE ADJUSTED ECONOMIC CHANGE CONTINUES TO
DECLINE. $$$

Never use the USGovt economic growth statistics,
even their statistical formulations. They take
change from one quarter to the next, adjust the
daylights out of it with grotesque deceptions,
then multiply the result by four, to produce the
worst accuracy of any economic statistic in existence
except that for price inflation. The better approach
is to view the annual change nominal GDP (shown
in olive green), which is the given quarter in
raw numbers versus the same quarter one year ago.
Nominal means base numbers without any treatment.
The adjusted GDP (shown in red) factors in price
inflation, but must therefore do so inadequately.
If the CPI is actually 6.0% and not 3%, then
the adjusted GDP series will not display the decline
as great as it should. The Shadow Govt Statistics
folks professionally report the true Consumer
Price Index to be in the 5.5% to 6.0% range these
recent quarters. So the adjusted GDP displayed
here is conservative, the reality worse. That
red line is the real GDP in the USEconomy going
back to the early 1990s, meaning inflation adjusted.
The USEconomy continues to decline, the real GDP
being at least 12% worse at the end of 4Q2009
than at the end of 4Q2008. It is still falling.
The tragedy comes from the growing USGovt federal
deficits, a matching bookend, worse by almost
12% at end 4Q2009 versus end 4Q2008. Justification
for deep concern comes from the shrinkage in the
money supply. The M3 continued by the Shadow
Govt Statistics folks happens to be in a decline
measured by the largest percentage in modern history.
SGS expect the effects on the USEconomy to be
increasingly obvious in the next month or so.

The reason a total collapse has not occurred
yet is that the USGovt has stepped in and spent
around $3 trillion in newly minted paper money
over the last two years. They have executed stimulus,
rescues, bailouts, and nationalizations. In doing
so, the USGovt has concealed and masked the insolvency
of the entire banking system, but not assisted
a significant slice of the insolvent households.
The collapse has wrecked many pension funds along
with annuity plans and other defined benefit plans.
They also changed the rules of accounting for
bank assets, a maneuver done in the open, resulting
in a phony stock recovery based upon insolvency
and fraud. The final fruit is bitter, a veneer
of a recovery, exaggerated at every turn.

◄$$$ ECONOMIC GROWTH IN THE UNITED STATES
IS A FANTASY. EVEN GOLDMAN SACHS KNOWS IT. THE
NEXUS TO THE SYNDICATE LET SLIP ITS VIEW THAT
MOST OF THE 4Q2009 GROWTH WAS AN ILLUSION. BY
SHARING SUCH ANALYSIS, THEY ATTEMPT TO EARN PUBLIC
GOODWILL. $$$

After the clouds clear, the dust settles, the
lofty estimates are brought down, inventory levels
are known, and actual trade gap data is known,
the 4Q2009 Gross Domestic Product will be announced.
To be sure, it is riddled with deceptions and
inaccuracies, fully intended. Yet the revisions
give a hint as to the direction of the USEconomy.
Goldman Sachs expects the silly high 5.9% GDP
to be revised downward in a significant way.
Much optimism and cheer came when the strong growth
was announced in the highly unreliable preview
on GDP in January. The motive is clearly to support
the stock market and deceive people on the fiction
that is the USEconomic recovery. According
to Goldman's Jan Hatzius, expect a sharp downward
revision to as low as 2.2% growth for the Q4 GDP.
Hatzius based his estimate on the income side
calculation of GDP as opposed to an spending method.
They are two different approaches toward the same
goal. The USGovt will be hard pressed to avoid
such a GDP release. David Rosenberg, one of my
favorite economists, now working away from Wall
Street and in Canada,
demonstrated that the 3Q2009 GDP was about minus
7% after exclusion of official stimulus. Lastly,
the bilateral trade gap with China has come down to $16.5 billion, the lowest
level since March 2009. Either trade friction
has blocked numerous big deals, like farm products,
or else the USEconomy simply importing more from
other parts of the world.

◄$$$ RETAIL SALES HAVE REBOUNDED, BUT THE
EFFECT IS TEMPORARY. USGOVT STIMULUS AND VARIOUS
PROGRAMS LIFTED RETAIL SALES. BESIDES, HIGHER
SAVINGS AND LOWER CONSUMPTION IS THE FORMULA TO
ANY ECONOMIC RECOVERY. $$$

Retail sales have been a bizarre, backwards,
controversial sector of the USEconomy. For two
decades, US citizens have been wild spenders on
retail items, and told that this is a sign of
strength in the nation. Such a viewpoint is opposite
to reality. Investment, like in businesses
or productive assets, is the sign of strength,
not consumption. A company does not become
strong by spending on frivilous junk, especially
when made by foreign hands, and neither does an
economy. In the last decade, the US consumer did not fortify the United States but rather the
Chinese and Japanese economies and citizenry.
The US is saddled with insolvency
in banks, homes, government, and industry. China has its problems, but
it also is in possession of $2.4 trillion in savings.
The USEconomy will not show signs of recovery
in rising retail sales or reduced trade gaps,
which is the prevailing common heretical viewpoint
held and promoted. In fact, the USGovt does
much to discourage savings and investment. People
are told to spend to make the nation strong, while
corporations invest in plant & equipment in
China and elsewhere. Labor is cheaper overseas,
taxes are lower overseas, and government regulations
are much less burdensome overseas. The reversed
initiatives hit an extreme when US consumers raided rising
home equity in the 2000 decade, spent on vacations,
room additions, education, medical costs, boats,
second homes, ordinary expenses, but then came
the wave of delinquencies and foreclosures. The
nation is not told of the linkage between consumption,
called by some burning one's furniture, and loss
of homes. The Hat Trick Letter warned of this
linked relationship for six years.

Using the official USGovt price inflation statistics,
the inflation adjusted monthly March retail sales
rose by 1.5%. That figure is seasonally adjusted
also. March real retail sales rose by 5.1% annually
on an inflation adjusted basis, but rose by a
7.6% gain before inflation adjustment. Real February
sales were up 2.1% annually, versus a 4.4% gain
before inflation adjustment. Certain short-term
factors assisted to produce a bounce in retail
sales from under the $160 billion level. USGovt
stimulus has worked its extremely limited magic.
Look for the trend to head down in the months
ahead. Also, higher gasoline prices have given
the illusion of higher nominal sales, but the
inflation adjustment is done in aggregate, meaning
the overall doctored lower CPI is used to reduce
those gasoline sales. No gasoline price index
is used.

The Jackass position for a few years has been
that very high trade deficits are linked to destructive
consumer spending, harmful to the long-term health
and prospects of the USEconomy. Low trade deficits
mean a powerful economic recession, since imports
are seriously reduced. Nothing has changed
on this dynamic, since factories to produce consumer
products have NOT returned to US shores after
a tremendous abandonment of industry to China
in years 2001 to 2004. Recall it was labeled
a Low Cost Solution, when it was actually a prelude
to economic failure in the United States. The outcome can be painfully seen.
Hand in hand with the sustained level of US consumption
has been rising levels of US
indebtedness. Essentially, the United States exported income to China and replaced it with
debt. The end result is insolvency.

Consider the trade deficit data. The Bureau of
Economic Analysis and the Census Bureau reported
the nominal seasonally adjusted monthly trade
deficit at $39.7 billion for February, up from
a revised $37.0 billion deficit in January.
The February trade balance reflected both higher
imports and exports, with a sharper increase in
imports. Since February 2009, an 86% annual increase
in oil prices has occurred. The January and February
2010 merchandise trade deficits were $40.9 and
$42.5 billion respectively, which project to a
whopping inflation adjusted annual deficit of
$500 billion. The trade deficit appears likely
to provide a strong net drag on 1Q2010 Gross Domestic
Product, after lifting the GDP growth in Q3 and
Q4 of 2009. It is all backwards, due to incredible
imbalances structurally. It should be noted that
March import prices were up by 0.7%, and March
export prices were up by 0.7% also. Pressures
to price inflation are coming from both the currency
side externally and the cost sid internally. Both
were down slightly in February.

A point simply must be made, one coming from
JPMorgan analysts of all places. They actually
made a press release that stated retail sales
were up in healthy terms due to strategic home
loan defaults and scoffing at mortgage payments.
People are not paying their mortgage properly,
instead using the money for regular expenses like
shopping!! Bank of America alone claims they have
250 thousand such home loans that have not made
monthly payments in over a year. This perverse
phenomenon is broad. Imagine an economy that continues
to churn, using money that is denied Wall Street
banks!!

◄$$$ NEWLY CREATED DEBT IN THE U.S. FINANCIAL SYSTEM HAS
A HORRIBLY UNPRODUCTIVE OUTCOME IN THE PRODUCTION
OF NEW USECONOMIC ACTIVITY. NEW JOBS ARE NOT A
CONCERN WHEN NEW DEBT HAS BEEN COMMITTED BY USGOVT
AID, NOR HOLDING CURRENT JOB POSTS. ONE NEW USDOLLAR
OF DEBT RESULTS IN MINUS 45 CENTS IN ECONOMIC
ACTIVITY. THAT IS WORSE THAN INEFFICIENT. IT IS
EVIDENCE OF BLACK HOLE DYNAMICS. $$$

The maestros believe that new money or new debt
(hard to tell the difference) can be created,
and presto change-o, the USEconomy rebounds. The
new money production line is disconnected from
the tangible economy. The bankers can thus can
tap federal liquidity facilities and ignore their
borrowing customers. The banking authorities are
resisting the solution, for the clear reason that
many from their sector would be destroyed and
their power eradicated. Most USGovt programs have
been blatant, extorted, or disguised Wall Street
rescues, aid, and welfare. Conversion of toxic
bonds does nothing to lift the USEconomy and produce
jobs. The TARP funds proved that redemption of
fraud ridden toxic bonds was the motive, along
with executive bonuses.

The US Federal Reserve has overseen vast money
printing for years, and a continuous climax in
the past two years. A crescendo awaits. A tipping
point comes, when all the USGovt deficits, all
the USTreasury Bond issuance, all the US
bank failures lead to a profound change in international
sentiment toward the USDollar. The creditors will
exit, since the US markets are not permitted to clear, to liquidate,
to enjoy the fresh breeze inherent to capitalism.
Financial markets throughout the entire USEconomy
are essentially frozen. A huge waiting game
has emerged between the expectant beneficiaries
of USFed efforts to stimulate inflation and economic
participants. In the process, the USEconomy
deteriorates further. See the home loan modifications
as an example of a waiting game. Consider the
chart that takes the change in GDP and divides
it by the change in Debt, a concept simple to
simple for economists who prefer to adjust the
data beyond recognition or value. The chart shows
how much productivity is gained by infusing $1
of debt into our monetary system, a system wherein
the money is but denominated debt. Back in the
1970 decade $1 of new debt added 60 to 80 cents
to the national output of goods & services.
As more debt entered the system, the productivity
gained by new debt diminished. Eventually the
debt won out, reaching a total saturation level.
Call it constipation instead. The collapse has
begun that has not ended. A dilemma has been created
by the top down monetary structure, as the nature
of the money itself in the USDollar is but a fish
rotten at the head.

Consider the shocking graphic above, a highly
illustrative if not shocking chart. The latest
USTreasury Z1 Flow of Funds report was released
in mid-March, reflecting activity through the
end of 2009. It dismisses most modern economists
and their heretical economic theory, since debt
suffocation is the end result, not prosperity.
It explains the jobless recoveries of the past
and how each recent economic cycle produced higher
monetary figures, yet lower employment. Debt suffocation
has been in progress, now in climax. Macroeconomic
debt saturation occurred, thus causing a radical
dynamic alteration with the debt relationship
in the USEconomy. Their quantitative theories
are worthless, since the US financial system has been dead for 18 months,
not to be revived. Any economic theory, formula,
or relationship that does not consider the non-linear
relationship between debt and its conversion to
production is destined to fail. The resulting
impact of a unit of new debt in the USEconomy
is actually negative, one new US$ of debt produces
minus 45 cents in economic activity. In fairness
to the charlatans, quacks, and hack economists,
productive benefit from debt is usually negative
early in any recession. But this recession is
a dreadful never-ending one, full of deceit.

The mere label of 'Jobless Recovery' should generate
contempt, since never in history has a recovery
come without new job creation. This is a continued
deterioration, a masked chronic lingering powerful
recession laced with deterioration. If the 0%
official interest rate and the $1.5 trillion federal
deficit do not convince the observer of failed
policy, failed remedy, and failed structural beams
within the system, then this chart should help.
The engines of debt are totally broken, the saturation
levels reached. Ironically and tragically, the
response from American leadership will be to press
the monetary pedal even harder, thus achieving
even more debt, even more recession, worse results
if that is conceivable. See the Economic Edge
article (CLICK HERE).